芯源系統 (MPWR) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Monolithic Power Systems, Inc. first quarter 2014 earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Meera Rao, Chief Financial Officer. Please go ahead.

Thanks, Kate. Good afternoon and welcome to the first quarter 2014 Monolithic Power Systems' conference call. Michael Hsing, CEO and Founder of MPS, is with me on today's call.

In the course of today's conference call we will make forward-looking statements and projections that involve risks and uncertainty which could cause results to differ materially from management's current views and expectations. Please refer to the Safe Harbor statement contained in earnings release published today. Risks, uncertainties and other factors that could cause actual results to differ are identified in the Safe Harbor statement contained in the Q1 earnings release and in our SEC filings,including our Form 10-K filed on March 10, 2014, which is accessible through our website, www.monolithicpower.com. MPS assumes no obligation to update the information provided on today's call.

We will be discussing gross margins, operating expense, net income, and earnings on both a GAAP and non-GAAP basis. These non-GAAP financial measures are not prepared in accordance with GAAP and should not be considered as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A table that outlines the reconciliation between the non-GAAP financial measures to GAAP financial measures is included in our earnings release, which we have filed with the SEC. I would refer investors to the Q1 2013, Q4 2013 and the Q1 2014 releases, as well as to the reconciling tables that are posted on our website.

I would also like to remind you that today's conference call is being webcast live over the internet, and will be available for replay on our website for one year,along with earnings release filed with the SEC earlier today.

MPS is pleased to announce record first quarter revenue of $60.1 million, representing a 16.7% increase from the first quarter of 2013. This year-over-year increase, which is well above the industry average, was fueled by diversified growth in revenues from a newer, higher-value consumer and investor end markets.

Over the last several quarters, MPS has released many groundbreaking products in several new markets. MPS continues to build on the innovative foundation of these products by expanding its portfolio. I would like to discuss some of these product family expansions with you.

In our AC/DC portfolio, we introduced the industry's first Monolithic 900 Volt Flyback regulator designed specifically for industrial power grid applications, supporting wireless communication. This product saved our customers from having to include a high-voltage blockage device, and due to its high integration allows for improved ease of use, higher reliability and the lowest overall solution cost.

MPS also expanding its LED lighting portfolio, with a third generation LED driver that includes power factor correction with dimming capability that has been even further enhanced from our previous industry-leading generation. We have multiple design wins for this third generation LED driver and expect revenue to ramp in the second half of the year.

Since we introduced our first products in the battery management family a few quarters ago, we have achieved significant success in the market. We have continued to expand this product family with the release of an even higher current charger, which integrates both boost circuits and smart power distribution. As a result, our new charger delivers the best efficiency performance in the market, which equates to faster time to charge for users. MPS continues to leverage its technical advantage to gain market share.

Finally, MPS continues to build its portfolio of [system-on-a-chip] MPM modules by introducing a new mid voltage family of products. The mid voltage family works from 4.5 to 24 volts and can handle currents up to 20 amps. Based on industry leading Monolithic BCD process technologies and a patented packaging technology, the MPM modules have achieved the smallest footprint on the market today. We continue to see widespread acceptance of the MPM module in the industry storage and high performance consumer markets.

Turning to the financials, our first quarter revenue of $60.1 million was at the mid-point of our guidance. Compared with Q4 2013, revenue decreased by $3.5 million or 5.5% primarily on seasonally lower consumer expense -- consumer revenue, sorry.

Looking at our revenue by end market; industrial revenue grew approximately $900,000, to $9.8 million,over the prior quarter,primarily fueled by automotive and smart meter applications.

Revenue in the communications market also grew in the first quarter by $745,000 to $13.6 million.

Computing revenue declined by $2 million to $10.6 million, reflecting an expected ramp down of an older HDD design win, as well as seasonal decline in notebooks, partially offset by FSD revenue growth.

Revenue from consumer markets declined $3.1 million in the first quarter to $26.1 million, largely due to seasonal declines in newer consumer markets like gaming, as well as in traditional consumer markets like TVs.

Let's review our non-GAAP operating expenses. Excluding stock compensation, our non-GAAP operating expenses for the first quarter of 2014 were $15.6 million, a decrease of $5.2 million from the $20.8 million we spent in the fourth quarter, and also down $6 million from the mid-point of our guidance.

This decrease was largely due to our $9.5 million legal settlement in our favor from 02 Micro. The settlement was recorded during the first quarter of 2014, as a benefit to the litigation expenses. This pick up was partially offset by one time charges of $400,000 for payments to the law firm that successfully represented us against 02 Micro, and special non-executive employee bonuses of $2.8 million.

Moving on to our GAAP operating expenses, our GAAP operating expenses were $23 million in the first quarter, compared with $26.3 million in the fourth quarter. Since the only difference between non-GAAP operating expenses and GAAP operating expense for these quarters is stock compensation expense, let's look at stock comp.

Stock comp expense attributable to operating expenses was $7.4 million in the first quarter, compared with $5.5 million in the prior quarter, as a result of a higher charge for paid for performance stock plans implemented from 2012 through 2014. Accordingly, we are required under the accounting rules to assess the probability of hitting the performance metrics under the plan on a quarterly basis. As we noted before, this has increased the quarter-over-quarter volatility of stock comp charges, compared to the typical straight-line approach associated with time based grants.

Moving on to gross margin, our first quarter GAAP gross margin was 53.4% for the first quarter, compared to 54% in the prior quarter. This decrease is primarily attributable to the impact of a special non-executive employee bonus of approximately $300,000 in the first quarter.

On a non-GAAP basis, our Q1 gross margin was 53.8% compared to 54.2% in the prior quarter. The only difference between the GAAP and non-GAAP gross margin is stock comp expense.

Switching to the bottom line, on a non-GAAP basis, a Q1 net income was $15.6 million, or $0.39 per fully diluted share. This result is computed with an estimated tax rate of 7.5%.

Q1 2014 GAAP net income was $9 million, or $0.23 per fully diluted share.

Now let's look at the balance sheet. Cash, cash equivalents and investments were $238.5 million at the end of the first quarter of 2014, above the $236.2 million at the end of the prior quarter, as well as the $186.8 million at the end of the first quarter of 2013.

In Q1, MPS generated operating cash flow of about $10.9 million. Cash proceeds from employee stock option exercises and employee stock plan purchases contributed another $6.6 million.

MPS announced a $100 million buyback program effective August 2013. Under this program we bought back approximately 324,000 shares for a total of $11.4 million in the first quarter of 2014. We also spent $3.9 million on capital equipment.

Accounts receivable ended the first quarter at $22.1 million, down from the $23.7 million at the end of the prior quarter, and $22.7 million at the end of the first quarter 2013.

Days of sales outstanding were down to 33 days in Q1 from 34 days in Q4 2013, and 40 days in Q1 2013.

Our internal inventories at the end of the year were $39.8 million, relatively flat with $39.7 million at the end of the prior quarter. Days of inventory increased from 124 days at the end of Q4, to 130 days at the end of Q1. Inventory in the distributor channel increased by approximately $800,000 over the prior quarter.

I would now like to turn to our outlook for the second quarter of 2014. We expect second quarter revenue to be in the range of $65 million to $69 million. At the mid-point of the guidance, we are projecting approximately a 16% year-over-year increase and about 11.5% growth from the prior quarter.

We also expect the following;GAAP gross margin in the range of 53.7% to 54.7%. Non-GAAP gross margin in the range of 54% to 55%.

Total stock-based compensation expense of $7.5 millionto $8.1 million, including approximately $200,000 that would be charged to cost of goods.

Litigation expenses of $200,000 to $400,000. Non-GAAP R&D and SG&A expense to be in the range of $ 20.5 millionto $22.5 million. This estimate excludes stock compensation and litigation expenses.

Fully diluted shares to be in the range of 39.5 millionto 39.9 million shares before share buyback.

In conclusion, MPS had an outstanding quarter, hitting record first quarter revenue while continuing to deliver solutions that exceed industry standards. We are delivering on our promise to broaden our product portfolio and grow revenues above the industry average with sustainable long-term growth.

I'll now open the microphone for questions.

(Operator Instructions). Our first question comes from the line of Tore Svanberg with Stifel. Your line is open.

Yes, thank you. Congratulation for the results. My first question is on your outlook for the next quarter. I was hoping you could talk a little bit about your visibility, either by backlog or current bookings?

Sure. We've had very good bookings so far, and I think we are seeing an environment that is better than what we saw a quarter ago. And that's what drives the guidance that we've now given for the second quarter.

Very good. And you mentioned your HDD business was down in quarter one. Are we at a point where SSD revenue is higher than HDD revenue?

Yes. It's -- more than half of our revenue is now coming in from SSD. And SSD continues to be a segment that's growing for us.

Okay. Very good.

That doesn't mean that HDD continues to go down. As the newer model ramping up, we expect the revenue start to pick up again.

Yes. So one design that started decreasing in the second quarter of last year has now bottomed out.

Okay. Very good. And on your consumer revenue, I know last year you actually grew it in dollar term, I know it become a smaller percentage. But if we look at how things are progressing so far this year, could Consumer still grow in dollar terms? Or are you expecting it to be more flat to down?

We expect Consumer revenues to also grow this year in dollars.

Okay. Very good. Last question for me, your gross margin guidance for Q2, does that assume just a natural improvement in mix or is there anything else behind that?

It contemplates slow and steady improvement in our gross margins, as we've always talked about in the past. And I think that's what you're seeing in the second quarter as our revenue mix gets richer.

Very good. Thank you again, and nice quarter.

Thank you.

Thank you.

Our next question comes from the line of Steve Smigie with Raymond James. Your line is open.

This is [Vince Solitano] speaking for Steve Smigie. My first question was, with the recent price cuts in LED bulbs, I was wondering if you knew, going forward, when this would translate into a pickup in sales?

Yes, the second -- as Meera has said in the script, the second half of the year on the third generation of the LED -- getting sales to revenue.

Okay. Great. And with the Broadwell delay, I was wondering if you see that impacting your 2015 outlook?

When you would you say that again? The first part I couldn't hear.

I'm sorry. I was saying with the Broadwell delay, I was wondering if you see that impacting your 2015 numbers?

Broadwalk?

Broadwell, from Intel.

Oh, you switched topics. Okay. Yes, these -- models, the 2015 -- is not in 2015's revenue. We're going to go beyond that. I don't -- I'm not very familiar with these names.

Okay. Great. Thank you very much.

Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Hey, good afternoon. This is actually Mike Diamond on for Ross. I was curious if you could give us a break down on your second quarter guide of the end market? Which coms, consumer computing industrial -- what all those should be expected to do directionally?

Sure. I would like to kind of put it in context, as I have in the past. We don't have as much visibility to break it down by the different end markets when we are looking at bookings on a forecast, as we do when we have the end quarter period POS resales data. But directionally, I can tell you that I expect to see growth in Consumer in the second quarter. I also think that we will see growth in Computing, since I expect both storage and notebook revenue to increase in that quarter. And I expect all the other markets also to do fairly well.

Okay. And in somewhat of a different vein; on your OpEx, it looks like if I back out the litigation benefit, it appears as though it came in a couple million above the mid-point of guidance -- I'm sorry, came in above the top end of non-GAAP guidance. I'm curious if there's anything beyond stock comp that would explain that? Or what the dynamics there is at large?

Well, before Meera answers, there is a correction. Meera, in the script, had said a settlement. This is not a settlement, this is a verdict from the Court. Meera, please answer the question.

Yes. So the $3.1 million that you're referring to is actually special bonuses that were given to employees in the first quarter. And I think that's a difference that you're picking up. And that's what I talked about in the commentary earlier.

And out of that $3.1 million, $2.8 million of that was in OpEx, and about $300,000 went into a cost of goods and impacted gross margin .

Okay. Understood. Thanks so much.

Thank you.

Our next question comes from the line of Rick Schafer with Oppenheimer funds. Your line is open.

Hi, guys. I'll add my congratulations on a nice quarter. First question is, could you give us an idea -- as mix improves and manufacturing costs are dropping, maybe walk us through your thought process on your longer term gross margin targets. What I'm asking is what's actually going to keep gross margins below 60% longer term?

Well, 60%, that's a big jump. As we said, in the long term, we are transitioning from -- we broaden our market coverage. And in the gross margin will grow. And when -- how we're going to get to 60%, I will say the possibility is there and as we build more annuity products, then we'll get there. But the questions are really -- really the question is, when we're going to get there? And as you know, this year Consumer business is going to do really well, and then they make up very good -- increase our EPS. And these are money that can't walk away. And so we -- I think in the next five, six years, I think the possibility is very good.

Rick, our focus has always been on maximizing the operating income on a non-GAAP basis. So we also try, at the same time, to improve our topline while steadily expanding our gross margin. And as Michael said, there are absolutely no headwinds when it comes to gross margin, and you're going do see it improve. And as we get more revenue coming from some of -- on your products, we also transition to a richer mix. And all that is going to help with our gross margin expansion as we go forward.

And so maybe the second part of that question would be; if you could give us some color on the percentage of your sales now that are BCD3 versus how much are still on BCD2? And then maybe remind us what that cost -- relative cost savings was, as you moved from BCD2 to BCD3?

Sure. Our revenue from BCD3 and BCD4 is -- was about 60% of our revenues in the first quarter . And the cost savings that we got that came out of that came both from having 20% to 50% downsize reduction and the cost savings that came from it, from the different products, as well as some of the packaging advances that we had made -- of course some of that cost advantage gets narrow as we go forward as our competitors continue to drop prices. But it clearly allows us to still match our competitor's prices in the consumer market with a (inaudible) family of products, and yet get corporate gross margin that is a model, 53% to 58%.

Meera this is my last question. Would you say on your Consumer and PC businesses, that the gross margins are actually improving there, as well? Because of these cost reduction efforts, are you seeing gross margin actually improve there?

We get pick up, periodically, as new products roll on to it. But some of the benefits have also come from some of the newer consumer markets we get into. And these newer markets have better gross margin profiles than traditional.

The one way Meera just mentioned it -- the [berry] management, and certainly much higher than the corporate average gross margins. And other consumer products we just recent recently introduced, even smart TVs -- and those products generally has a much higher gross margin compared to other existing ones.

Great. Nice quarter, guys. Thanks.

Our next question comes from the line of Anil Doradla with William Blair. Your line is open.

Hey, guys, thanks for my question. Meera, you talked about a charger. I just wanted to clarify, would some of the applications of these chargers be in the automotive industry for electric vehicle charging, would that be an application?

No. Our charging is -- a lot of them is for consumers products, and otherwise is hand tools.

Okay. So little step away. And also you talk about LED being a driver in second half of 2014. Can you give us a little bit more color on what you meant by that?

We just introduced the third generation of LED drivers in early this year, second half of last year. And it's well, well received. And in the conference call we should have brought that up to our shareholders. And that was -- have some additional revenues in the second half of this year.

Can you quantify it or that's difficult at this stage?

It's a -- as you know, the LED market is very fragmented, a lot of customers competing with the same sockets. And some are going to win, some going to lose, . But these sockets are little more in the consumer side. So it's difficult to -- for us to forecast from the design wins to revenues.

Okay. And finally, in your last Analyst Day, you talked about going from two billion [TEM] to six billion [TEM] as you entered into new markets. Is there an update on that TEM now? Is it more than six billion that you're trying to address? Or can you give us an update on that front?

Since then, one of the newer markets that we entered into that we have discussed publicly is the gaming market , and I don't think we have announced any new markets since then.

We don't look at the TEM, calculate the TEM every quarter. From the last year's Analyst Day, we announced that, here is the ten we're going to cover, this is the opportunities. And since then, of course, we introduced a lot more product, and we have more TEM. But we don't have any particular numbers.

Okay. All right. Thank you very much and congrats.

Thank you.

Our next question is a follow up question from Tore Svanberg with Stifel. Your line is open.

Yes. I had a follow-up on your Monolithic Power Module. I was hoping you could give us an update on (inaudible) and also on optimizing the (inaudible) for that product family?

Tore, could you please say that again? You're breaking up.

Yes. Sorry. I was hoping you could update us on design wins for Monolithic Power Module and also on the cost structure initiatives there?

Yes, we have -- of course we have seen a lot more design wins from the last quarter to -- well, from two quarters ago to last quarters. And Meera talked about it in the script that we have a more industrial design win, more in SSD, more in the -- on the Consumer side, actually . And some wearable device, some action cams, those kind of things -- cameras, that require very small devices. And that they want to use the higher performance product. And so we have lots of design activities.

And so the revenue -- we'll translate revenues, some of them more than the other ones, and consumer being the fastest, and the industrials relatively slower. Also, in automotive we have several design wins. And these probably take us three years to generate any revenues.

From a cost side, the cost is a really -- at this time, is not really our concern, because we are selling values. And the gross margins is a much, much higher than the corporate average, and so less concern. But we believe our -- the way we implement the module is the lowest cost in the market. We don't use a PCB, we don't use any multiple chips in there. And everything is the same. We utilized an integrated server packaging technology, which we developed. And available in -- we implement it in the assembly, and which can be mass produced. So the reliability and the costs is that we clearly will have an advantage now.

One of the things that is truly exciting about these modules is a variety of markets into which it's being adopted into. We have design wins all the way from SSDs to appliances to smart meters into automotives, other industrial applications, networking. We seen these products kind of being adopted very widely.

And revenue, as Michael said, some of it -- Consumer will be earlier to ramp and the others will take a little longer. But you're going to see us talk more about this and having this be the more significant part of the revenue, particularly in 2015 and 2016.

Thank you. Last question, you're a relatively new entrant into the high voltage market. I was hoping you could just update us a little bit there? And will you actually start to break out BCBHV based revenue?

The last part -- that last portion was a --

The BCBH.

Well, I'm glad you mentioned it. This is the fastest growth segment in our revenue stream. The high voltage device we started about four or five years ago, and the revenue grows and grows phenomenally, in the AC to DC side, and also as well in LED lighting.

Just to add to that, our AC/DC products essentially sell across to more than one of our end markets. While lot of it goes into Industrial,we also have one of our AC/DC parts -- the synchronous rectifier that is going in for gaming, as we announced a few quarters ago. So we won't be able to break it out that way. But we will give some color as we go through the rest of this year and next year.

Most of --

Thanks again. Great job.

Okay. A lot of them is -- the power off -- these are micro transmitters, the wifis and the -- for connectivities.

Very good. Thank you.

Okay.

I'm not showing any further questions at this time. I would like to turn the call back over to management for closing remarks.

I would like to thank you all for joining us on this call today, and we look forward to talking to you all again at the next earnings release. Thanks and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a good day.